5 ways to ensure that your customers pay their bills

Late payment or even not getting paid at all are some of the most frustrating aspects of running a business. Here are 5 ways to make sure that you get paid for every job.

1. Don’t automatically give credit to new customers

Every business needs liquidity and cash-flow. While giving credit to your customers may increase sales or the likelihood of a sale, it effectively keeps your cash in their bank account instead of yours. In the majority of cases there may be no request from the customer to extend them credit anyway so your default should be ‘no credit unless requested’.

If they do request it and it’s a project for a company, run a credit check or alternatively get a copy of their accounts from Companies House (if you’re in the UK). It costs about £5. This will give you a good insight into the state of their finances and help you make an informed decision about whether to lend money to another company and ensure the credit doesn’t turn into a debt.

2. Take a deposit and / or partial payment in advance

In the service and construction industries, if you can – and most times you should – take a deposit that at least covers your material expenditure. And if you can take enough to cover some of your other costs such as contactor wages, so much the better. This is pretty much standard practice in the UK now and it isn’t unreasonable to request a 50% deposit for medium sized jobs such as landscaping, central heating installations, electrical re-wiring projects and even end of tenancy cleaning.

A reasonable customer will understand that you need to cover the cost of your materials. And if they don’t – you’ve probably had a lucky escape from a non paying customer.

Generally, taking a payment from the customer signifies a commitment to the project from both parties and in the event that the customer doesn’t pay the rest of the bill, at least you’ve covered some of the expenses.

3. Get your invoice out as soon as the job has finished

Take your time getting the invoice out to your customer and you are signalling that they can take their time paying it. Sending an invoice late to a business can add as much as 30 days to the payment cycle. And as you’ll be aware as time goes on customers feel less obliged to pay the invoice in it’s entirety finding faults with the work they didn’t mention until you asked for payment.

Make sure that your payment terms are clear before you start work and appear on your invoices when you’ve finished. Put a link to your terms and conditions on your email for all correspondence or even better put a line just below your name saying ‘Payment is due upon competion of work’ – then no-one is going to have any surprises. Remember, the client is agreeing to your terms – and that should include payment terms.

Your cash flow is critical, so get paid as soon as possible by getting your invoice to the client as soon as the job has been completed. With the latest invoicing software you can send an invoice in seconds.

4. Reward customers for paying on-time

Sometimes the carrot can be more effective than the stick. If your usual terms are to accept payments within 30 days, offer a small discount to customers who pay within 14 days. If you can afford it offer 2 percent.

5. Have a procedure for non-payers and act quickly

The more quickly you follow up on non-payment, the better your chances of getting paid. Set up a procedure for dealing with non-payers and act quickly. Good accounts payable software will flag late and non-payments – you might even find a standard ‘click-to-send’ overdue payment email.

Your procedure should start initially with a call to your customer to ‘touch base’. Be polite and friendly – they may just have forgotten – but at least you’ve put yourself on their radar and most of the time you’ll probably receive payment.

No luck so far and your next course of action is to send an email and ideally a letter that simply states that payment is overdue and to request the customer’s immediate attention to the matter. If you still get no response follow up with another couple of emails and letters expressing increasing concern.

At this point if you haven’t had a result you’re going to have to consider whether the bill is large enough to warrant spending anymore time on it. So, you can either write it off – which is always painful – or you can start with a debt recovery procedure.

If you’ve decided debt recovery is the way to go then you might want to consider filing a claim with Money Claim Online. It’s a simple and relatively cheap way to issue a County Court Claim for a fixed amount to someone who owes you money and it’s a service provided by HM Courts & tribunal Service. It’s only available in the UK. It can be very effective as it affects the credit rating of the customer. I will be writing another article about how to enforce a CCJ in the near future.

Your other option is to employ a debt collection agency to chase them. There are plenty on-line with a ‘no-win no-fee’ model. They charge around 33% if they successfully recover any money and sometimes they will add a fee to the bill that covers this cost. In my experience they are most effective with customers who have not had previous experience with debt collection. Someone who has had previous credit problems will know how to play the system and they are much harder to recover money from. But there are ways and again I will be discussing this in a later article.

Get organised and get paid

The top 2 reasons that small businesses fail are – lack of sales and lack of cash flow. We’ll cover sales another time, but for cash flow it means protecting yours at all costs. Get organised now, because just as sure as Tuesday follows Monday, every business will have a bad payer at some stage. Get your terms sorted out, issue your invoices right away and move quickly with pre-written emails and letters to chase payment.

Getting prompt payment can mean keeping your business in business.

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